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CH 3 Multiple Choice Questions
CH 3 Multiple Choice Questions
1.
Which of the following is a nominal account?
a. Prepaid Insurance
b. Unearned Revenue
c. Insurance Expense
d. Interest Receivable
2.
Which of the following errors will cause an imbalance in the trial balance?
a. Omission of a transaction in the journal
b. Posting an entire journal entry twice to the ledger
c. Posting a credit of $ 720 to Accounts Payable as a credit of $ 720 to Accounts Receivable.
d. Listing the balance of an account with a debit balance in the credit column of the trial balance.
3.
Which of the following statements is associated with the accrual basis of accounting?
a. The timing of cash receipts and disbursements is emphasized.
b. A minimum amount of record keeping is required.
c. This method is used less frequently by businesses than the cash method of accounting.
d. Revenues are recognized in the period they are earned, regardless of the time period the cash is
received.
4.
5.
In reviewing some adjusting entries, you observe an entry which contains a debit to Prepaid
Insurance and a credit to Insurance Expense. The purpose of this journal entry is to record a(n):
a. Accrued expense
b. Deferred expense
c. Expired Cost
d. Prepaid Revenue
6.
7.
The failure to properly record an adjusting entry to accrue an expense will result in an:
a. Understatement of expenses and an understatement of liabilities
b. Understatement of expenses and an overstatement of liabilities
c. Understatement of expenses and an overstatement of assets
d. Overstatement of expenses and an understatement of assets.
8.
9.
An adjusting entry to allocate a previously recorded asset to expense involves a debit to an:
a. Asset account and a credit to cash.
b. Expense account and a credit to cash
c. Expense account and a credit to an asset account.
d. Asset account and a credit to an expense account.
10.
Which of the following adjusting entries will cause an increase in revenues and a decrease in
liabilities?
a. Entry to record an accrued expense
b. Entry to record an accrued revenue
c. Entry to record the consumed portion of an expense paid in advance and initially recorded as an
asset.
d. Entry to record the earned portion of revenue received in advance and initially recorded as
unearned revenue.
11.
The failure to properly record an adjusting entry to accrue a revenue item will result in an:
a.
b.
c.
d.
12.
The failure to properly record an adjusting entry for the expiration of insurance coverage will result
in an (assume the account Prepaid Insurance) was charged when the premiums were paid.):
a. Overstatement of assets and an overstatement of owners equity.
b. Understatement of assets and an understatement of ownersequity.
c. Overstatement of assets and an overstatement of liabilities
d. Overstatement of liabilities and an understatement of ownersequity.
13.
The omission of the adjusting entry to record depreciation expense will result in an:
a. Overstatement of assets and an overstatement of owners equity.
b. Understatement of assets and an understatement of owners equity.
c. Overstatement of assets and an overstatement of liabilities
d. Overstatement of liabilities and an understatement of owners equity.
14.
An auditor is examining an adjusting entry that reduces liabilities and increases owners equity.
Which of the following adjusting entries could that be?
a. Entry to record an accrued revenue.
b. Entry to record the earned portion of revenue received in advance and previously recorded as
Unearned Rent Revenue.
c. Entry to record an accrued expense.
d. Entry to record the expired portion of expense paid in advance and previously recorded as
Prepaid Expense.
e. Entry to record bad debts expense.
15.
The Office Supplies on Hand account had a balance at the beginning of year 3 of $ 1,600. Payments
for acquisitions of office supplies during year 3 amounted to $ 10,000 and were recorded by a debit
2
to the asset account. A physical count at the end of year 3 revealed supplies costing $ 1,900 were on
hand. The required adjusting entry at the end of year 3 will include a debit to:
a.
b.
c.
d.
16.
17.
18.
19.
The Camphor Company made cash sales of services of $ 5,000 and credit sales of services of
$ 4,200 during the month of July. The company incurred expenses of $ 6,000 during July of which
$ 2,000 was paid in cash and the remainder was expected to be paid in August. Using the accrual
method of accounting, net income for July amounts to:
a. $ 7,200
b. $ 5,200
c. $ 3,200
d. $ 200
20.
Dr. Hellinger keeps his accounting records on the cash basis. During 2007, Dr. Hellinger collected
$ 660,000 in fees from his patients. At December 31, 2006, the good doctor had accounts receivable
of $ 50,000 and unearned fees of $ 6,000. At December 31, 2007, he had accounts receivable of $
68,000 and unearned fees of $ 4,000. The amount of fees earned on the accrual basis by Dr.
Hellinger during 2007 was:
a.
b.
c.
d.
$ 640,000
$ 676,000
$ 680,000
$ 724,000